2006 (9) TMI 517 - HC - VAT and Sales Tax

Summary

Issues involved: Determination of entry tax on lay flat tubings and PP bags purchased by a proprietary firm against "C" declaration form u/s 8(1) read with 8(4) of the Central Sales Tax Act, 1956. Interpretation of entry No. 24 of the Schedule to the Tamil Nadu Tax on Entry of Goods into Local Areas Act, 2001.

The petitioner, a proprietary firm, purchased lay flat tubings and PP bags against "C" declaration form issued u/s 8(1) read with 8(4) of the Central Sales Tax Act, 1956. The first respondent proposed to levy entry tax on these products, claiming they fall under serial No. 24 of the Schedule to the Tamil Nadu Tax on Entry of Goods into Local Areas Act, 2001. The petitioner contended that entry tax was not applicable as the products were essentially polypropylene. The first respondent confirmed tax and penalty demand based on a clarification by the Principal Commissioner. The petitioner argued that such clarifications cannot have retrospective effect based on previous court judgments.

The main issue for consideration was whether entry tax was leviable on the purchase turnover of the products under section 3 of the Tamil Nadu General Sales Tax Act, 1959, despite a clarification issued by the Special Commissioner and Commissioner of Commercial Taxes. The clarification stated that the products in question were raw materials and not finished products. The power to issue such clarifications is provided u/s 28-A of the Tamil Nadu General Sales Tax Act, 1959. Various court judgments were cited to support the contention that clarifications, even if executive in nature, must be followed until prospectively withdrawn.

The Supreme Court's rulings in various cases emphasized that clarifications issued by tax authorities, though executive in nature, are binding and must be followed until prospectively withdrawn. The Special Commissioner's clarification dated August 19, 2005 was held to have only prospective application and could not affect the assessee in the assessment year in question. The court distinguished previous judgments regarding the binding nature of such clarifications and their impact on tax assessments. The writ petition partly succeeded, declaring the clarification to have prospective application and quashing the assessment order.

In conclusion, the court ruled that the clarification regarding entry tax on lay flat tubings and PP bags had only prospective application, leading to the quashing of the assessment order. The writ appeal was dismissed accordingly, and connected miscellaneous applications were closed.